When chief executive Terry Massingham announces his plans for one of Britain's oldest construction firms next week, there's little doubt they will entail its radical reformation - but it's not clear just how radical, or what will remain when it's over.
so what's next for MJ Gleeson? A year ago, The 103-year-old construction group made a £16.6m loss and withdrew from general contracting. Since then there has been a reliable flow of rumours about what will happen next, most predicting some form of break-up and disposal. Next week we should have a better idea of what really is going to happen: that is when Terry Massingham, Gleeson's chief executive, is due to announce the results of his review of the business.
It is not hard to see the reason for the speculation. In these days of industry consolidation, a group that turns in a bad result and suffers a fall in its share price is considered potential prey. In Gleeson's case, this reached a head in January, when investment company Castle Acquisitions said it was considering a £197m bid. Gleeson's board fended off this offer, but Castle may yet try to appeal directly to profit-hungry shareholders.
If the company is to retain its independence, it needs to convince the City and the industry that it has the business skills to survive in the third millennium. A week after Building revealed that Gleeson's rivals are looking at its housing arm, we look at three options for the company that might be announced next week.
Scenario one: Breaking up the business
Gleeson has already shown that it is willing to sell parts of itself. Last August it offloaded Gleeson Building to a buyout team led by managing director Martin Smout.
More recently, there has been the attempted sale of Gleeson's £150m-turnover engineering business. Three weeks ago it was revealed that Morgan Sindall was in talks to buy it, although it is now understood that it is likely to take only a part of it.
One element that is likely to interest Morgan Sindall is probably is Gleeson's framework and partnership agreements with the water industry. These would find a good home with Morgan Est, Morgan Sindall's infrastructure arm. Gleeson has long-term partnerships with most of the UK's water companies and its work includes the design and construction of water treatment works, pumping stations and reservoirs. Recent projects include the £97m Katrine water project in Scotland.
Gleeson would probably sell the rest of this division to a third party, as engineering is not a good fit with a business that does not have contracting at its core.
The fate of the £160m-turnover housing and regeneration arm is less clear. Last week Building revealed that potential bidders are circling. These are understood to include Gladedale Homes, Miller Group and Gerald Ronson's acquisitive Heron International, which spent most of last year in pursuit of Crest Nicholson. However, a senior Gleeson source says a sale is not being contemplated.
Gleeson would be more reluctant to sell this part of the business, as housing and regeneration are now where the company's core skills lie. But everything has a price and Gleeson has appointed an adviser to look at its overall strategy. One City source says about Gleeson's housing rivals: "There's definitely an appetite out there [to consolidate]."
A sale of the housing and engineering businesses would leave the property business. Gleeson develops in the office, retail and industrial sectors, but this is a relatively small part of its activities - its developments in the pipeline have a combined end value of barely £100m. Although it is small, the development arm is highly profitable, and Gleeson could use it to build its name in the sector.
Scenario two: Selling the whole company
A takeover of the whole company is possible. Castle has already thrown its hat into the ring, and despite the fact that its initial attempt to manoeuvre a reverse takeover was blocked, chairman Christopher Mills said he would go over the head of Gleeson's board and talk directly to shareholders.
Castle has said no more about the matter since. Its results statement last week said a further announcement would be made "as and when appropriate".
It is widely thought that Castle would not succeed with a formal offer for Gleeson. David Taylor, an analyst at stockbroker Teather & Greenwood says: "Gleeson has undergone a process of rationalisation and renewal over the past year. The would-be acquisitor and its backers should have recognised that; just what Castle could add right now is far from clear."
And then there is the fact that chairman Dermot Gleeson and his family own 30% of the company's shares and Gleeson's staff own a further 9.2%. This makes a hostile bid unlikely to succeed.
Other commentators believe that this would not be an issue with a friendly bid because the company is now run by the third generation of Gleesons, who will inevitably have less of an emotional attachment to the firm. They have already disposed of the building business, retaining just a small equity for up to five years. And then there is the example of John Laing; Sir Martin Laing showed little regret in selling a 150-year-old family company, and the rump of the business has since prospered.
Alternatively a housebuilder or developer such as Gladedale, Heron or Miller Group could make an offer for the whole group. The property development and investment business would fit in well at those companies, and if Morgan Sindall bought most of the civils business, what was left would make a neat package.
Scenario three: Focusing on its core business
Sources close to Gleeson say that the board's preferred option is likely to be to focus on its core business of housebuilding, regeneration and property. This theory is buttressed by the fact that Massingham comes from a housing background.
It also makes sense in terms of sticking with what it does well. Gleeson has had a difficult two years, but its homes division has increased operating profit 39% to £17m in the year to 6 October. Turnover has risen 43% to £160m.
At the time the results were announced last October, Dermot Gleeson said: "The withdrawal from general building contracting has very substantially reduced the group's risk profile. The task now is to develop to the full the profit-generating potential of the group's continuing operations and to identify new opportunities in related sectors."
Massingham could decide to expand the housing business in its own right - Gleeson sold 726 homes in 2005, 36% more than in 2004. Another option would be to better integrate the housing and regeneration arm with the property development business. One source says: "There is very little synergy being utilised between the housing and property businesses." Opportunities in mixed-use development could therefore lie ahead.
Others believe that even if Gleeson does retain and develop its housing and regeneration arm, the end result will be the same. "They're damned if they do break it up, and they're damned if they don't," says one City source, who believes that the prevailing appetite for housebuilders means that it will be bought sooner or later. As a source close to Gleeson puts it: "Terry will want to expand, but someone could come along and tempt them to flog the lot."
1903 Michael Joseph Gleeson leaves his home in Cloonmore, Ireland, to become a brickie for a housebuilder in Sheffield. He marries the boss’ daughter and eventually takes over his father-in-law’s business. By the 1920s the business has expanded to metropolitan areas such as Manchester and London.
1930s and 1940s Gleeson has grown into a nationwide organisation, building homes in Newcastle upon Tyne and expanding in the South. In the 1930s, the company moves its headquarters to Cheam in Surrey, where it purchases and develops on the Nonsuch Estate which remains a popular residential area to this day. During the Second World War Gleeson builds vital infrastructure such as hospitals and military camps.
1950s and 1960s Jack Gleeson takes over the company in 1950 following the retirement of his uncle, Michael Joseph. He is to be the company’s managing director for nearly four decades; he also spends 44 years as chairman. Perhaps his greatest legacy is his decision to list the company on the stock exchange in the 1960s.
1970s and 1980s Gleeson’s successful highways division starts working on the government’s motorway-building programme, including the A3, the M4 and the M20. In the 1980s, Gleeson constructs one of the capital’s landmark buildings, Lloyd’s of London. Turnover hits £65m.
1988-today In 1988, Dermot Gleeson takes over from his uncle Jack as chief executive. Jack Gleeson becomes chairman until his death in 1994, when Dermot again succeeds him. By the mid-point of the first decade of the new millennium the company has turnover of about £700m, but a loss of £16.6m in the contracting division forces it to sell it to its management.
The future The City is due to find out Gleeson’s plans for the next few years when it makes its statement next week. There has been much speculation that some or all of the 103-year-old company might be about to be taken out of the hands of its founding family.